VENTURES: Chinese Start Digging Around KCM

Recent Western Cape Business News

IT would seem the dastardly Cape mining curse has struck again with Waterfront-based diamond miner Kimberley Consolidated Mining (KCM) scaling down production at its flagship Bo-Karoo Mine.

The group – which looks distinctly short on working capital – cited the reduction in the demand for rough diamonds and drop in off in carat prices as the main reasons for scaling back at Bo-Karoo.

KCM directors say that until the volatility in the diamond market subsided the company will “scale down active mining and prospecting operations”.

The situation looks quite desperate with KCM indicating that a process to dispose of some of the company’s “moveable assets to improve its cash flow” is underway.

While this seems a rather desperate short term measure (especially if diamond prices tick up in the next few months), directors say the company will hire equipment “as and when it is required going forward”. It seems the disposals under consideration could be fairly hefty as KCM indicated it would seek shareholder approval if necessary.

KCM directors also indicated the board will consider using subcontractors at the Bo Karoo mine to enhance production when the outlook for diamonds improved.

KCM produced a R20 million loss from operations in the half-year to end August 2008 with operational costs of over R57 million not nearly covered by R37 million revenue generated from the much-vaunted Bo-Karoo mine.

The big problem for KCM is that its current liabilities of R24 million are nearly three times larger than its current assets of R9 million.

That’s a tight squeeze in anyone’s book, and KCM’s financial footing leans heavily on the directors’ ability to cash out some of the R64 million the group holds in property, plant and equipment.

Of course, selling off mining equipment at a reasonable price into a market that has all but stalled is no easy task.

As things stand observers could be forgiven for regarding KCM as another ambitious Cape-based mining venture that could not deliver on promise.

And we have seen so many over the past decade – Dalsig Mining, Benguela Concessions, Zenith Concessions, Union Mines and Regional Resources.

Interestingly, at the time of going to press KCM threw a curve ball by advising its shareholders that negotiations with China National Geological and Mining (CNGM) are underway.

No further detail was provided, but CBN would guess talks revolve around CNGM providing fresh funding for KCM in exchange for a sizeable stake in the company.

How much CNGM will invest and how big a stake it would take in KCM will be fascinating to gauge. CBN will keep close tabs on this situation in the months ahead.